Indiana tax credits for railroad improvements, infrastructure could benefit rural counties

State tax credits for qualified rail expenditures on improvements and new infrastructure are expected to help short line railroads compete with other modes of freight transportation and spur economic development in rural Indiana.

House Enrolled Act 1461 allows short line railroads and businesses investing in rail maintenance, track expansion, and new projects in rural counties with populations under 300,000 to receive up to 50% in state tax credits.

Adam Robillard — general manager of Madison Railroad — is also chairman of Railroads of Indiana (ROI) and a staunch supporter of the legislation. He is raising awareness about the tax credits since lawmakers passed the law in April. 

“We’re working by word of mouth, trying to get it out to all the economic development agencies and communities who can benefit and even educating the other small railroads who may not be as familiar or don’t have the resources to understand how this works,” he said.

Robillard believes the state tax credits will increase rail infrastructure safety while encouraging the growth of Class II and Class III railroads. Mickelson and Company, a tax credit advisory firm, now highlights Indiana as one of the states with a railroad tax credit program on its website.

“All the states that have a history of this have shown significant improvements in rail infrastructure: safety derailment declines, grade crossing improvements. There are so many benefits that have been proven over and over again,” Robillard said. 

Joe Gioe — president and CEO of Indiana Rail Road — sees the law’s economic potential for small railroads evolving through the cultivation of customer relationships.

“The better our railroad is, the more our customers will have confidence in us because we’ll be reliable. Then, ultimately, they’ll want to do more business with us,” said Gioe.

Improvements

The first railroad expenditure element of the legislation is a $3,500 tax credit per mile for existing rail infrastructure improvements up to $9.5 million each fiscal year. Unlike other modes of freight transportation that benefit from taxpayer-funded infrastructure, Robillard pointed out that small railroads primarily pay to maintain their privately-owned tracks.

“Trying to direct some kind of support to these small businesses, nearly 50 of them in the state, small railroads, which for the most part are for-profit railroads, that receive no direct funding and are also a direct competitor with publicly subsidized interstate highways, airways and waterways,” he said.

The rail improvement tax credit will allow small railroads to reinvest money previously allocated for maintenance into growing their businesses, according to Robillard.

“It offsets the need even slightly from having to commit all of their resources to just a maintenance capital to a growth capital and developing business and working with customers and communities, economic development agencies, and such to invest in growth. And that’s something that our industry in this state has never been able to do properly,” he said.

Part of the law’s goal is to boost investment in rail, not only through the improvement tax credit, but also through private sources by emphasizing the importance of repairs and reconstruction.

“The real education part is going to come in on the maintenance side to ensure that all the route miles in the state that can take advantage of it are taking advantage of it. And that means making sure they’re planning their capital properly so they’re spending enough money,” said Robillard.

New infrastructure

Another component of the legislation is a tax credit of up to $500,000 per new track project, up to $5 million each fiscal year. Gioe said building new infrastructure that benefits customers will help small railroads be more competitive.

“In the state of Indiana, we compete with other modalities. The number one competitor is trucks. And that infrastructure is nearly 100% subsidized by the taxpayers of the state, by Hoosiers,” he said.

Robillard stressed many site selectors require rail-ready spots when locating businesses that are nearshoring, onshoring, or growing — and the motivation to invest in that type of infrastructure is something small railroads didn’t have before this law.

“And that [tax credit] can be utilized by any railroad in a rural community. So this levels the playing field for investment into these rural communities and not just in the urban areas of our state,” he said.

Since the federal 45G railroad tax credit only applies to maintenance, Gioe believes the new rail infrastructure incentive in Indiana’s legislation is an element that could create additional high-paying jobs for Hoosiers.

“Every time we get a tax credit, we reinvest or respend that money on something else. We’ve added 52 jobs on Indiana Rail Road in 2025. In Greene County, Vigo County, think of Linton, those types of areas,” said Gioe. “We’re fundamentally working towards long-term career value generation for people that benefits their kids and their kids. And that’s what we are the most excited about.”

Full steam ahead

Now that the railroad expenditures tax credits are law, Robillard is moving forward with endeavors that benefit Madison Railroad.

“We’re planning for next year to spend almost an additional half a million dollars because of this [tax credit]. That’s going to be in transloading capacity in the city. And in preparation last year, I purchased an additional ten acres that I can now develop with this tax credit. So it’s going to be huge for us and a few other small railroads who have projects coming to come into fruition,” he said.

Gioe is approaching customers with a new mechanism to invest capital into his railroad business, which he believes is the most important part of the legislation.

“I have to spend it to get it. It’s not a handout,” he said. “Terre Haute is one of those places where we see a ton of potential in our partnerships with Mayor [Brandon] Sakbun and his economic development council. We have purchased a significant amount of real estate in the city to leverage this tax credit in 2026, 2027, and beyond.”

Though the railroad tax credits don’t apply to Class I railroads and counties like Allen County with more than 300,000 people, New Haven Mayor Steve McMichael believes what’s good for small towns in northeast Indiana is good for the whole region.

“It is a great public-private agreement to be able to offset some of those infrastructure costs for sidings and additional industrial loads, which could be a shot in the arm to smaller counties in rural development along those short-line railroads and help them compete,” said McMichael.